Singapore Industrial Property Market Sees A Slow Down in Both Sales and Leasing Activities in 3Q 2013

2013-10-09

Market Forecast to Stay Subdued in 4Q 2013 with an Up-to-Five Per Cent Fall in Capital Values and Minimal Movement in Rents

International property consultant, Colliers International’s latest quarterly research report on the Singapore industrial property sector revealed that activities in both the sales and leasing markets have slowed down in 3Q 2013.

Sales market

After registering an increase in the past 16 quarters, the average capital values of prime freehold conventional factory space reflected a slight dip in 3Q 2013.

The average capital values of ground- and upper-floor prime freehold conventional factory space eased by 0.3 per cent and 0.2 per cent quarter on quarter (QoQ), to S$716 per sq ft and S$657 per sq ft, respectively in 3Q 2013.

In contrast, the average capital values of prime freehold warehouse space continued to inch up but at a moderated rate.

The average capital values of ground- and upper-floor prime conventional warehouse space in 3Q 2013 reached S$659 per sq ft and S$584 per sq ft, respectively – both increasing by 0.5 per cent QoQ. This is compared to the QoQ growth of 1.1 per cent for ground-floor premises and 0.9 per cent for upper floors in 2Q 2013.

Mr Tan Boon Leong (陈文龙), Executive Director of Industrial Services | Project & Sales at Colliers International, says, “The quarter saw a slowdown in activities in the strata-titled industrial sales market, which is a result of the Government’s implementation of the Total Debt Servicing Ratio (TDSR) requirement on all property loans.

We had observed that some prospective buyers have retreated to the sidelines in anticipation of price moderation, while some sellers lowered their prices towards the end of the quarter, caving in to the pressure of slower sales activity and heightened competition for buyers.”

Mr Tan continues, “Nonetheless, the increasing downward pressure on prices and the longer sale process arising from the TDSR requirement have also prompted some developers to bring forward the release of units in their new projects, along with price discounts and incentives to attract buyers.”

New projects that have a 30-year leasehold tenure and of which units were released for sale in the quarter included the 424-unit Eco-Tech@Sunview in Boon Lay, the 342-unit Mandai Connection in Mandai, as well as the 158-unit North View Bizhub and the 247-unit Win 5 in Yishun.

Meanwhile, a new freehold redevelopment project, the 22-unit Agrow Building in Geylang, was also released for sale during the quarter.

Leasing market

Over at the leasing market, the high-specifications (high-specs) industrial space segment experienced an easing in rents during the quarter.

The average monthly gross rents of ground- and upper-floor high specs premises slipped by 0.3 per cent and 1 per cent QoQ to S$3.29 per sq ft and S$2.95 per sq ft, respectively, in 3Q 2013.

Mr Tan comments, “The stricter enforcement on the legitimate use of industrial space by the Government, as well as the weaker market sentiment in view of softer economic indicators1, have resulted in a sluggish take-up rate of high-specs space during the quarter; which in turn, affected rents.”

Nonetheless, the average monthly gross rents for prime conventional industrial space registered a slight increase in 3Q 2013, after holding constant in the preceding quarter – supported by lease renewals and higher rents sought by landlords who have paid high prices for their properties in recent years.

Specifically, the average monthly gross rent of prime conventional factory space climbed 1.2 per cent QoQ to S$2.52 per sq ft for ground-floor space, and by 0.9 per cent QoQ to S$2.20 per sq ft for upper floors.

Likewise, the average monthly gross rent of prime conventional warehouse space enjoyed a 0.8 per cent QoQ increase to S$2.64 per sq ft for ground-floor space, and a 0.5 per cent QoQ increase to S$2.16 per sq ft for upper floors.

The only segment in which rents remained unchanged was that of business park space. For the second consecutive quarter, the average monthly gross rents of business park space in 3Q 2013 remained at S$4.04 per sq ft.

Mr Tan adds, “While landlords of newer buildings sought higher rents, some of the older business park buildings faced downward pressure on rents due to an increase in vacant space after the relocation of tenants to newer business park premises.

Furthermore, the quarter saw the completion of new buildings, such as Sandcrawler and Nexus@one-north, resulting in an overall increase in supply; which kept the overall rental growth of business parks in check.”

Outlook

Going forward, sentiment in the industrial property market is expected to be muted in 4Q 2013 – due to the presence of global economic and geo-political risks, uncertainties over the performance of the local manufacturing sector, as well as the effects of recent Government measures.”

Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory at Colliers International, says, “Transaction activity in the strata-titled industrial sales market is anticipated to stay subdued in 4Q 2013, as the impact of TDSR filters through the market. With more buyers expected to adopt a wait-and-see approach for a possible price correction, sellers with weaker holding power are likely to lower their prices to move sales.

This will result in a downward pressure on the average capital values of prime freehold conventional industrial space, which is expected to fall by up to five per cent in 4Q 2013. Consequently, the average capital values of prime freehold conventional industrial space for the entire 2013 is forecast to correct by up to 5 per cent.”

Ms Chia continues, “On the leasing front, any movement in rents is expected to be minimal, as landlords are likely to hold on to their rental expectations. Moreover, tenants’ continued cost-conscious stance and supply pressures will keep any rental growth in check.

As such, rents of prime conventional industrial space are expected to be relatively stable in 4Q 2013. Meanwhile, rents of business park space are projected to hold steady due to an increase in supply, and if demand remains slow, rents of high-specs space could ease further.”

Notes:

Softer economic indicators: Although the Ministry of Trade and Industry has lifted Singapore’s economic growth forecast for 2013 to between 2.5 per cent and 3.5 per cent in August, Singapore’s non-oil domestic exports fell for the 7th straight month in August, flagging the risk of a weak economic performance in 3Q 2013. At the same time, the Purchasing Managers’ Index (PMI), a key barometer of industrial activity, fell to 50.5, which indicated activity appeared to have slowed.